Requirements for larger mortgage deposits from first time buyers were likely to lead to low transaction levels for several years, but this should recover once purchasers got used to saving more for a deposit, he explained in a speech to the Home Builders Federation in London.
Monthly mortgage approvals in Britain have hovered just below 50,000 since the financial crisis, compared to levels of 80,000 to 90,000 during the previous decade.
House prices are still 20% below their peak in real terms, and would probably be even lower if the fall in mortgage approvals was thought to be permanent, Miles said.
A rise in deposits required from buyers would lead to a permanent rise in the average age of first time buyers and a fall in the home ownership rate, neither of which Miles said should make people worse off.
An increase in average deposits to 10% from 5% would cause a four year hiatus in housing market activity and a similar rise in the average age of first time buyers, assuming they did not save at a faster rate, Miles estimated.
Miles said that the cheap mortgage finance on offer in the years running up to 2007 had been unsustainable, as it relied on banks using less risky long standing borrowers to subsidise new, more risky ones.
‘But eventually you run out of road in terms of cross subsidisation from the back book you run out of suckers,’ he said.
In future, he added that a good source of mortgage finance could be from pension funds and insurers seeking assets that provided a long term sterling interest stream rather than the short term overseas investors who had funded much of the residential mortgage-backed securities market before the crisis.
But some parts of the property market are not seeing a slowdown, most notably in London. Andrew Giller, partner and head of The Buying Solution’s London office, said there is heightened activity in the prime London market, particularly on purchases in the £1 million to £3 million price range, which made up 78% of all central London property transactions in the last 12 months.
‘We’ve have also seen price increases of approximately 10% on the best in class properties in all price ranges since the beginning of the year,’ he added.
And he revealed that despite reports of an influx of Middle Eastern clients looking to purchase in London due to the unrest, approximately 70% of clients are UK based buyers, some of whom are looking to purchase pied-à-terre's, investments for long term growth, and a number of city based clients who want to upgrade their principle family residence.
'At the top end of the market, £10 million plus, a greater number of properties are being placed, whereby an estate agent quietly markets a property to two or three of their best buyers hoping to create a micro auction scenario. Within this market, there is a large amount of foreign money and most international purchasers do not wish to enter into such scenarios; they are prepared to lose out on a property if they feel that they are being pressurised,’ he explained.
